Filing Income Tax Returns (ITR) is more than merely a compliance task; it’s a vital step to declare your income, pay the right taxes, and claim refunds when due. For the individuals who are earning from the capital gains, be it from property sales, shares or mutual funds, then the filing process requires high attention. Capital gains taxation involves the specific rules and regulations, exemptions and other reporting requirements. Missing the finer details may lead to notices from the Income Tax Department or loss of eligible benefits provided by the IT department.
This blog will guide you with the help of the essentials of filing ITR for capital gains from property, shares, and mutual funds, including types of capital gains, applicable ITR forms, and tax rates.
Understanding Capital Gains
Capital gains are those profits which is earned from the sale of a capital asset, such as real estate, stocks, bonds or mutual funds, when the sale price is higher than the purchase cost. Under the Income Tax Act, capital gains are classified into two categories based on the holding period: –
a) Short-Term Capital Gains (STCG)
- Property: Sold within 24 months of purchase.
- Equity shares & equity mutual funds: Sold within 12 months of purchase.
- Debt mutual funds: Sold within 36 months of purchase.
b) Long-Term Capital Gains (LTCG)
- Property: Held for more than 24 months.
- Equity shares & equity mutual funds: Held for more than 12 months.
- Debt mutual funds: Held for more than 36 months.
Applicable ITR Forms for Capital Gains
The choice of ITR form depends on the type of income: –
| ITR Form | Who Should Use | Capital Gains Coverage |
| ITR-2 | Individuals/HUFs with income from salary, house property, capital gains, and other sources of income (no business income) | Yes |
| ITR-3 | Individuals/HUFs with income from business/profession plus capital gains | Yes |
| ITR-4 | Presumptive business income (no detailed capital gains reporting) | Not suitable for reporting detailed capital gains |
For most salaried individuals or investors with capital gains but no business income, ITR-2 is the correct choice.
Tax Rates for Capital Gains
Property
- STCG: Taxed as per your income slab.
- LTCG: Taxed at 20% with indexation benefits.
Equity Shares and Equity Mutual Funds
- STCG (holding ≤ 12 months): 15% flat (Section 111A).
- LTCG (holding > 12 months): 10% on gains above ₹1 lakh (no indexation).
Debt Mutual Funds (Post Budget 2023 changes)
- All gains: Taxed as per income slab (no LTCG indexation benefit for investments made after 1 April 2023) …!
Calculating Capital Gains
The formula for calculating gains is:
Capital Gains = Sale Price – Purchase Price – Transfer Expenses – Indexed Cost of Acquisition/Improvement (for LTCG where indexation is allowed)
Indexed Cost is calculated by adjusting the purchase price using the Cost Inflation Index (CII) to account for inflation.
Step-by-Step Guide to Filing ITR for Capital Gains
Step 1: Collect all the Required Documents
- Sale deed/agreement for property.
- Purchase deed/agreement for original cost.
- Brokerage/transfer fee receipts (if any).
- Demat account statement for shares and mutual funds.
- Capital gains statement from brokers or mutual fund houses (Consolidated Account Statement from CAMS/KFintech).
- Cost Inflation Index table from the Income Tax website.
Step 2: Determine Nature of Gains
Identify each transaction as STCG or LTCG, which is based on holding period and asset type.
Step 3: Calculate Gains & Apply Exemptions
Use the correct formula as provided, then apply indexation (if applicable) and deduct eligible exemptions…!
Step 4: Choose the Correct ITR Form
Usually, ITR-2 is for salaried individuals and investors.
Step 5: Fill in the Capital Gains Schedule in ITR
In the Schedule CG, you must report:
- Description of asset sold.
- Date of purchase & sale.
- Sale consideration.
- Indexed cost (for LTCG).
- Exemptions claimed.
Step 6: Verify Tax Computation
Ensure that your total tax liability includes the capital gains tax and that TDS credits are claimed properly (from Form 26AS) …!
Step 7: File and E-Verify
Submit the return online via the Income Tax through e-filing portal and then complete the e-verification within 30 days.
Common Mistakes to Avoid
- Not reporting capital losses – They can be carried forward to offset future gains—up to 8 years in the case of LTCG, and in the same year for STCG against any capital gains…!
- Using the wrong ITR form – Leads to defective return notices.
- Incorrect holding period calculation – Particularly in case of bonus shares or inherited property.
- Skipping indexation – For LTCG on property or eligible assets, missing indexation inflates tax liability.
- Overlooking exemptions – Such as Sections 54, 54EC, and 54F.
Deadlines & Penalties
- Due Date: For individuals not requiring an audit, 31st July of the assessment year.
- Late Filing Fee (Section 234F): Up to ₹5,000 (₹1,000 if total income ≤ ₹5 lakh).
- Interest (Sections 234A/B/C): Charged on delayed tax payments…!
Special Notes for FY 2024-25 Filers
- Debt mutual fund taxation has changed from April 2023—no LTCG indexation for new investments.
- Keep an eye on AIS (Annual Information Statement) and TIS (Taxpayer Information Summary) on the e-filing portal; the IT Department now pre-populates capital gains data.
- Ensure that any TDS deducted (e.g., on property sale) is reflected in Form 26AS before filing.
Conclusion
Filing ITR for capital gains from property, shares, and mutual funds requires careful, cautious and attentive categorisation, accurate calculation, and accurate reporting. With the Income Tax Department’s emphasis on transaction-level data, transparency, and precision are non-negotiable. By understanding the rules and regulations, keeping documentation and data ready and leveraging the exemptions, you can reduce your tax liability while staying fully compliant…!
Remember, even if your total income is below the taxable limit, then filing your ITR helps to maintain a clean and clear financial record, which is very important for the purpose of approval of loans, visa applications and various other future investments. Whenever you are in doubt, it is highly recommended that you always consult a tax professional or expert to avoid errors, mistakes, etc., and make the most of the available benefits.
